BERMUDA ROUNDTABLE DISCUSSION

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1 ROUNDTABLE BERMUDA ROUNDTABLE DISCUSSION SEAN MORAN, OF THE BDA, SPEAKS TO TONESAN AMISSAH OF APPLEBY, KEN MAHADEO OF APEX FUND SERVICES, HENRY KOMANSKY OF OYSTER CONSULTING AND CRAIG BRIDGEWATER OF KPMG ABOUT BERMUDA S DEVELOPMENT AS A DOMICILE Sean Moran is a business development manager with the Bermuda Business Development Agency (BDA). His role is focused on promoting Bermuda as a jurisdiction for international business, and assisting asset managers and fund service providers set up and grow in Bermuda. Sean Moran (SM): What are the key attractions for new firms looking to set up/build their presence in Bermuda? Have there been any recent successes in attracting more firms to do business with or in Bermuda? If so, what are they? Henry Komansky (HK): Bermuda is just about two hours from most cities in the northeast corridor, including New York and Miami, which makes it an ideal location. Historically, Bermuda has high levels of internet penetration and is often ranked as second in the world due to this factor. Additionally, Bermuda is a sophisticated jurisdiction with a tried and tested civil and commercial law system that supports a vast array of business structures. The island is proud of its reputation, and through collaboration among the financial services sector, our government and our regulator, the Bermuda Monetary Authority, it continues to lead as a first-class jurisdiction. The depth and knowledge of service providers on the island is also part of our success and remains a key attraction. In terms of success stories, a large reinsurer made a THE ISLAND IS TAKING SERIOUSLY THE WORLDWIDE PUSH FOR TRANSPARENCY AND ACCOUNTABILITY very public redomicile back to Bermuda in 2016 from Ireland. This was likely in response to Bermuda s Solvency II equivalency. We have also seen asset managers set up in Bermuda in addition to more and more start-up companies in the insurance-linked securities (ILS) space. The ILS market has seen significant growth in Bermuda and the Bermuda Stock Exchange (BSX) has responded to the needs of these products by creating a streamlined and efficient process to list ILS. Tonesan Amissah (TA): The elevator pitch is undoubtedly that Bermuda is one of the world s leading financial centres with a long history of not just providing first-class financial and professional services, but doing so within a gold standard regulatory framework. The island s independent regulatory body, the Bermuda Monetary Authority (BMA), has emphasised its commitment to the broader asset management industry and Bermuda s fund products, which include the ability to file and launch a fund in Bermuda on a same day basis. As other jurisdictions are starting to see a cost creep and HFMWEEK.COM 5

2 additional licensing requirements, Bermuda is now attracting firms who want a quicker, more cost-effective and easier option without compromising the reputation of the fund. Bermuda s first-class reputation makes this possible. This reputation is built upon a tradition of transparency and regulatory effectiveness, complying with the highest of worldwide standards on anti-money laundering, financial crimes and anti-terrorist financing. Craig Bridgewater (CB): I would agree that key attractions for Bermuda include: a word-class reputation; the presence of intellectual capital that is highly skilled and innovative; a very responsive approach to adopting international regulations; and flexible but effective and robust regulation. To comment on the last point, the regulation available in Bermuda is appropriate for the corporate vehicles and related activity. Our regulatory environment has been recognised by regulators in other larger jurisdictions such as the US, UK and throughout Europe. Recently, Bermuda has seen many successes in attracting new business and activities to the jurisdiction. One area of particular note is the convergence space, where we ve seen the creation of several structures related to insurance-linked securities (ILS) and hedge-fund backed reinsurers. There has been a commitment to embrace and encourage the ILS asset class in Bermuda, by creating and maintaining the correct legal and regulatory environment in which those structures could thrive. Ken Mahadeo (KM): Bermuda has an excellent asset management reputation, benefiting from a 400-year-old judicial system and active support of global standards and fund structures. There is a great parity between the progressive nature of the Bermudian funds industry and the innovative, all-inclusive approach Apex takes to delivering services across the full value chain of a fund. We have recognised Bermuda as a key fund jurisdiction for over 13 years; the Apex group was founded in Bermuda in 2003 and to this day remains one of the largest administrators on the island. Bermuda is now seen as the premier jurisdiction delivering a one-stop shop for funds. It is home to experienced and internationally trained industry professionals delivering a wealth of experience across all services and has provided a solid base to develop Apex s administration business; now a total of 33 offices worldwide and $45bn AuA. Collaboration is the key to Bermuda s success. The creation of a unified stakeholder focus group combining onshore associations and authorities has brought new opportunities to the island. There have been dozens of new captives as well as large insurers redomiciling to the island; a by-product of this success has been increased interest by private equity firms who are looking at options for placing insurance interests in Bermuda. SM: What recent legislative changes has Bermuda seen in the last 18 months? Which have been the most pivotal and why? 6 HFMWEEK.COM Tonesan Amissah is a partner and member of the Funds and Investment Services team within the corporate department. Tonesan specialises in the structuring, formation and day-to-day operations of a wide range of investment vehicles, including mutual funds, hedge funds, unit trusts, private equity, segregated account companies, partnerships and master/feeder structures. Craig Bridgewater is head of Investments and Banking at KPMG in Bermuda. He has significant experience providing audit and advisory services to the financial services industry, including Bermuda-based funds and investment managers. ILS HAS SEEN A SURGE IN POPULARITY, HELPING ATTRACT LARGER MANAGERS LOOKING FOR NON-CORRELATED INVESTMENTS KM: As a global provider with over 600 staff across 26 jurisdictions, Apex has a unique insight into the comparative complexities in the legal and regulatory environments across all fund markets. During the last 18 months, Bermuda s attractiveness as a fund domicile has further improved, as the BMA and other stakeholders are continuously looking at ways to enhance the legislative framework to adapt to the changing funds landscape. As we mentioned earlier, ILS has seen a surge in popularity, helping attract larger managers looking for non-correlated investments. Through our ILS services, we have seen a notable growth in funds setting up with insurance-related strategies and bigger funds setting up reinsurance vehicles. The recent investment law changes are making it easier for those managers to establish themselves here. The passing of the Perpetuities and Accumulations Amendment Act in late 2015 means a more cost-effective application process for trusts looking to establish or relocate there. It s also worth noting that a committee of local professionals has been formed, producing a Bermudian AIMA branch which will help drive more legal and regulatory enhancements in line with global best practices. HK: Bermuda continues to enhance its anti-money laundering/anti-terrorist financing regime with amendments to various laws and guidance notes, to bring it in line with the latest Financial Action Task Force (FATF) recommendations and interpretive notes. Furthermore, the island is taking seriously the worldwide push for transparency and accountability and is also updating many other laws including those to creating stronger data protection for the public and implementing international standards for bribery, corruption and fraud. TA: In March 2016, the Contracts (Rights of Third Parties) Act, 2016 (CRTP Act) became fully operative. The Act is significant in that, subject to its terms, it permits parties to vary the common law doctrine of privity of contract, which provides that only parties to a contract may enjoy the benefits and enforce the provisions of that contract. Under the CRTP Act, persons not specifically party to a contract may now be entitled to benefit from and enforce the terms of the contract, subject to certain restrictions. This is particularly relevant in the context of indemnities commonly found in fund documentation, for example, those given pursuant to the terms of investment management agreements. Looking forward, legislation is slated to be tabled in the House of Assembly later this year for the establishment of limited liability companies in Bermuda. This legislation will be modelled after the Delaware legislation so will be welcomingly familiar to persons who currently operate in the asset management space and we are already seeing interest from potential clients in this regard. CB: In December 2015, amendments to Bermuda partnership laws came into force.

3 ROUNDTABLE These amendments have allowed for greater flexibility in how partnerships do business. As a result of the amendments, the safe harbour provisions of the Limited Partnership Act 1883 have been enhanced to clarify that if a limited partner undertakes certain actions, they will not be surrendering their limited liability status as a limited partner. The amendments also allow partnerships that have elected to have separate legal personality to hold assets and grant security in their own name. As a result of the amendments, a partnership can convert to a company and vice versa, and overseas partnerships can easily convert or continue into Bermuda. SM: How have various regulatory initiatives such as Solvency II, AIFMD, UK Fatca, CRS, CbC reporting impacted Bermuda s regulatory environment? TA: Bermuda was pleased to be selected among the first wave as one of three countries to be assessed in respect to the EU Solvency II Directive and became fully equivalent this year. As a result, Bermuda s commercial (re) insurers and insurance groups will not be disadvantaged when competing for, and writing, business in the EU, which of course has corresponding advantages for those seeking to access and benefit from the ILS asset class. AIFMD is obviously very important to a number of jurisdictions outside of the European Union. At this stage it would be presumptuous to comment upon the impact of the initiative as Bermuda is yet to be recognised as a third country within that regime. But, if Bermuda does obtain such recognition, that would represent a great benefit to those funds that are already registered within Bermuda and provide a further incentive for those considering which jurisdiction to house their offshore fund. Bermuda is therefore committed to working together with Esma to show that, like with Solvency II, it is deserving of such recognition. CB: Yes, all of these initiatives have impacted Bermuda s regulatory and operational environment. This is not inconsistent with other jurisdictions as changes in international regulation is reshaping how business is conducted globally. Fortunately for Bermuda, the jurisdiction has been at the forefront of the adoption of such regulations. A hot topic with clients when it comes to the disclosure regimes identified is certainly the Common Reporting Standard (CRS). The advantage that Bermuda has over certain other jurisdictions with addressing CRS is that Bermuda adopted a model two approach to Fatca, whereby there was no direct reporting between Bermuda and the US tax authorities. The CRS is more closely aligned to the reporting approach of model one Fatca, where such reporting exists. Having been able to observe the approach of, and issues faced by, other jurisdictions, Bermuda has been able to focus on formulating a response to satisfy CRS reporting requirements which should be more robust and accessible than might otherwise be the case without the benefit of hindsight. KM: The Bermudian tiering system for opting in to various levels of regulation is an attractive pull for managers looking to keep overheads and compliance requirements Henry Komansky is an attorney in the Financial Services industry, specialising in compliance, anti-money laundering and counter terrorist financing. He has held executive positions in an international banking group, a long-term life insurance company, and Bermuda s Financial Intelligence Agency. Prior to moving to Bermuda, Henry was a special agent for the Federal Bureau of Investigation. Ken Mahadeo is the managing director for Apex Fund Services in Bermuda. Prior to joining Apex in May 2016, Ken was the managing director for CNS Accounting Solutions, a subsidiary of BDO Cayman, which he established in Ken has progressive Canadian and international experience and has been in the hedge fund industry for the past 15 years. His expertise and skill sets are broad; covering operations management for investment managers, business development and fund administration. Ken is a certified professional accountant and registered with Nova Scotia CPA office. manageable. Recent amendments made to the Investment Business Act position Bermuda as a favourable jurisdiction for non-eu passporting under AIFMD, as Tonesan mentioned. Supporting the implementation of directives and ensuring appropriate legislation is drawn up early, means Bermuda offers investors a jurisdiction where they can place capital in well-supervised funds. In regards to administration, larger bank-owned administrators often struggle to provide suitable responses in a constantly changing regulatory environment. It is here that independence is paramount; Apex s clients receive value through the ability to deliver a flexible service supported by local experts in every jurisdiction. Apex is the only administrator that enables Bermudian fund structures to be used and supported either locally on the island, or in other jurisdictions. HK: In the last few years, there has been a host of changes in Bermuda following these regulatory initiatives, all five of which have been or are being addressed. Bermuda has attained Solvency II equivalence, signed up with US Fatca, agreed to report on UK Fatca and signed on to CRS as an early adopter. In April 2016, Bermuda became the 33rd jurisdiction to agree to the implementation of Country-by-Country reporting (CbC), for which it will collect aggregate information annually relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within a multinational business group, starting with 2016 accounts. This information will also clarify which entities do business in a particular jurisdiction and the business activities each entity engages in, and will then be exchanged in accordance with the relevant agreements. The last jewel for Bermuda s crown would be obtaining AIFMD third country passport rights. SM: How is Bermuda capable of meeting a single client s multiple needs? CB: Bermuda is capable of meeting a client s multiple needs in that several of the services and skills required by clients are resident in Bermuda. This ranges from legal to accounting, audit, tax, administration and to trust advisory services. Many of the service providers have access to international networks (such as KPMG and other global professional services firms) and can bring these resources to bear in servicing their clients. In addition to the excellent environment for service provision, Bermuda offers advantages in relation to capital raising and access to potential investors. Bermuda is a tax neutral jurisdiction, meaning that the fund itself is not the subject of direct taxation. Of course, there may be taxes in the jurisdictions where assets of the fund are located, and investors may be required to pay tax under their own tax rules on any income and capital gains; the point is that Bermuda allows investors access to the fund without including a further layer of complexity. Investors also want to be sure, and may often be required, to invest in vehicles which are recognised as being regulated in and by a reputable jurisdiction. Again, Bermuda ticks this box. HFMWEEK.COM 7

4 HK: Bermuda has a long history with a large number of full service law firms, has representation from the Big Four accountancy firms, and many other well-established service providers. International regulatory consultancy firms such as Oyster are able to provide assistance to companies setting up as well as on-the-ground expertise to design a compliance framework which will satisfy their regulatory requirements. Outsourcing of specific compliance functions allows a firm to focus on building their business. KM: Non-regulated funds in Bermuda benefit from same day registration while regulated authorisations take up to five days, compared with a typical average of four to six weeks across most other fund domiciles this speed to market is a key requirement for clients. As has been mentioned, the fact that no fund-level tax is imposed and that there are a plethora of high-quantity onshore service providers available, means that Bermuda can offer a full suite of expertise and a safe and secure infrastructure to cover all aspects of a fund s requirements. TA: In the legal context, Bermuda offers an extremely well-developed framework for the initial incorporation of stand-alone vehicles and the formation and subsequent or contemporaneous creation of group structures. The flexibility of Bermuda s law, including with respect to its company and segregated account company statutes and partnership legislation, means that legal advisers are really able to work with clients to reach their commercial objectives within their desired structure, whether that be through including a traditional private equity distribution waterfall in a corporate vehicle rather than a partnership, fund-of-one structures, or putting in place a series of companies with a view to switching them to partnerships if desired in the future. SM: How does Bermuda differentiate from its rivals? How does it retain its leading status? TA: Appleby is an offshore law firm with a presence in IN ADDITION TO THE EXCELLENT ENVIRONMENT FOR SERVICE PROVISION, BERMUDA OFFERS ADVANTAGES IN RELATION TO CAPITAL RAISING AND ACCESS TO POTENTIAL INVESTORS multiple jurisdictions. We do not see those jurisdictions as rivals to one another, rather they complement each other and can together offer clients a range of bespoke solutions to their individual needs. That being said, Bermuda has learned that in order to be successful in the asset management arena, as is true in most instances, you cannot rest on your laurels and must continue to innovate in order to lead. HK: Agreed. Bermuda certainly has not rested on its laurels as a leading insurance and reinsurance domicile this is evident from our pursuit of Solvency II equivalency. The island prides itself on regulatory transparency and developing a risk-appropriate regulatory regime. The long history of strong communication between the public and private sector that was evident during the Solvency II journey is again being reflected in Bermuda s AIFMD initiative. The Bermuda Business Development Agency works tirelessly to promote Bermuda and our reputation as a first-class jurisdiction. This effort has shown results in many areas, but none more so than in the hosting of several key conferences over the past couple of years, many of which plan to return on an annual basis. CB: Ultimately, superior service, appropriate and globally recognised regulation, global connectivity and highly respected intellectual capital all play key roles in maintaining Bermuda as an industry-leader. KM: Oversight and supervision alongside a continual push toward enhancing regulation in accordance with global standards has kept Bermuda at the forefront of the funds industry. The BDA, with its bold cross-border outreach programme aimed at attracting investment in the jurisdiction, is playing an important role in making Bermuda stand among asset management domiciles. The synergistic relationship between the BDA, BMA, government and industry stakeholders is helping Bermuda bolster its reputation as a world-class financial centre and a progressive leader in asset management. 8 HFMWEEK.COM

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